More jobs for Americans but at lower wages

by STJobs, 31/12/2011

LOUISVILLE (Kentucky): Manufacturers are hiring again in the United States, softening a long slide in factory employment.

That is particularly true of global manufacturers like General Electric (GE). With labour costs moving down at its appliance factories in Kentucky, the company is bringing home the production of water heaters as well as some refrigerators and expanding its workforce to do so. But wages paid to new hires are US$10 (S$13) to US$15 an hour less than the pay scale for hourly employees already on staff.

Such union-endorsed contracts are also showing up in the auto industry, at steel and tyre companies and at manufacturers of farm implements and other heavy equipment, said Mr Gordon Pavy, president of the Labour and Employment Relations Association.

'Some companies want to keep work here or bring it back from Asia,' he said, 'but to do that they have to be competitive in the final prices of their products, and one way to be competitive is to lower the compensation of their American workers.'

The shrunken pay scale for newcomers - US$12 to US$19 an hour versus US$21 to US$32 an hour for long-time workers - threatens to undo the middle-class status of even the best-paid blue-collar jobs still left in manufacturing.

A similar contract limits the wages of new hires at a nearby Ford Motor stamping plant, but neither the workers nor their unions nor the mayor, Mr Greg Fischer, has objected.

Quite the contrary, all argue that job creation must take precedence over holding the line on wages, given that the unemployment rate in this Ohio River city is above 9 per cent and several thousand people apply for every unfilled US$13-an-hour factory job.

'The trade-off is absolutely worth it,' Mr Fischer said, arguing that while the city is actively subsidising GE's expansion here, mainly through tax rebates, that is not enough.

'You must have a globally competitive wage to create jobs,' he insisted.

The generational setback is evident at GE's Appliance Park, where the company makes refrigerators, washing machines, dishwashers and other appliances. Six years into the adoption of lower wages for new hires, half of the hourly workers are paid at the reduced scale

In an earlier era, that would have been a source of friction, perhaps protest. Now it is not, and in an interview, retired Appliance Park worker William Masden, 62, who earned US$31.78 an hour after 42 years there, attempted to provide an explanation.

The younger workers still get annual raises, he noted, and by the time they top out, he and his peers 'won't be here any longer to remind them of what they are missing'.

Ms Linda Thomas, 37, one of the first to be hired in 2005 under the new arrangement, amended that explanation. Her hourly wage, US$18.19, has almost topped out, although it is nearly US$14 an hour less than Mr Masden's.

'You don't want to rock the boat,' she said. 'You take a chance on losing everything you have if you do.'

Said Mr Jerry Carney, president of the Local 761 workers' union: 'We are getting from the company an US$800 million investment in Appliance Park over the next two years, and what we had to do for that investment was accept the 'competitive wage'.'

The decline in US unit labour costs is striking. In manufacturing, the wages and benefits invested in each unit of production have fallen in eight of the past 10 years, a net decline of 13.6 percentage points, the Bureau of Labour Statistics reported.

Productivity played a role - modern factories require fewer workers. Still, the decline is the greatest in such a short time since the statistic was first tracked in 1951.

In China, in sharp contrast, unit labour costs in manufacturing have risen in recent years, which means the gap between the US and China, while still great, is nevertheless narrowing slightly. This is one reason why GE is making its new water heaters in Kentucky instead of China.

'We are at an inflection point in manufacturing in terms of relative cost structures,' said Mr Mark Zandi, chief econ-omist of Moody's Analytics. 'Ten years ago, it was a no-brainer to locate in China, and now it isn't so clear whether China is the low-cost place to produce in.'